Forget $5 Gas

When was the last time you read an article about the price of gas going down? Over the last several years, every time a reporter calls to ask me about prices at the pump, it’s because prices are going up.

Since 2009, oil prices have been on a steady upward climb. That means, for the most part, so have prices at the pump. In fact, it wasn’t long ago that energy analysts were predicting $5 gasoline prices. And with consistent turmoil in the Middle East and a seemingly unquenched thirst for oil by China, how could prices not continue to go up? Well, the story has changed here recently.

We may be headed for prices at the pump well below $3. That means, if I spend enough money at Kroger this month (not crazy given my kids thirst for milk, which is more expensive than gas now), I could be buying gasoline for under $2 per gallon with my Kroger benefits. When’s the last time that happened?!

Here’s the low down:

US oil prices have fallen from over $100 per barrel in May of this year to under $90 as of last Friday; and the price of gasoline has neatly fallen right along with it. As of Friday, the national average price for a gallon of gas was $3.32 and the Atlanta average was slightly higher at $3.40, according to gasbuddy.com. Both of these levels are nearly 10% lower than earlier this year. Remember, as the price of oil falls so goes the price at the pump.

So why are oil prices falling?

China, the world’s key driver of global growth and new oil demand, is facing a significant economic growth slowdown relative to the last several years.

Europe, whose combined economy is basically the same size of the US economy, is facing very uneven economic growth and battling the ongoing effects of tensions in Ukraine and Russia.

Middle Eastern members of OPEC, such as Iraq, Iran, Saudi Arabia, and Libya have actually shown a lot of resilience in their oil production despite the ongoing military conflicts across the region. Governments throughout the Middle East rely heavily on oil revenue for a whole suite of government, military, and social programs. Think “keeping the peace” in places like Saudi Arabia and the United Arab Emirates all being funded by oil profits.

Oil production here in the US continues to accelerate and offset the need for high-priced imports from abroad thanks to continued successful drilling programs in places like the Bakken Shale (North Dakota) and Eagle Ford Shale (eastern Texas).

In short, over the last couple of months global demand for oil has been softening (or at least not growing as quickly as expected) while supply is increasingly abundant. Despite this recent drop in prices, I expect oil and gas prices to rise moderately over the next several years.
But for now, we will likely enjoy the benefit of cheaper prices at the pump.
Not a bad deal for those of us filling up the family truckster for college football tailgates every Saturday…